Malema is right, you know

Ivo Vegter

Ivo Vegter

Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He writes on this and many other matters, from the perspective of individual liberty and free markets. He is seldom wrong.

28 Jun 2011 06:26 (South Africa)

The reaction to Malema's land-grab and nationalisation rhetoric during the ANC Youth League's recent congress was predictable. With a few notable exceptions, it has also been wrong. Because Malema is quite right.

“The willing-seller, willing-buyer approach to land acquisition has constrained the pace and efficacy of land reform. It is clear from our experience that the market is unable to effectively alter the patterns of land ownership in favour of an equitable and efficient distribution of land.”

Don't argue. He has hundreds of thousands of young supporters, most of whom are either angry or revolutionary or both. He has big bodyguards with big guns. (Well, he used to.) How much influence he has on national policy is arguable, but it's surely not insignificant.

Don't let any of that intimidate you, however. The reason not to argue with Malema is that he is quite right. The free market has not brought about “equitable” land ownership.

Statistics are very thin on the ground, but for the sake of argument we may as well accept the Youth League's own claims:

“When we attained democracy and freedom in 1994, black people owned only 13% of the land and white people owned 87% of the land, mainly because of the 1913 land Act and the Bantustan Act of the apartheid government. The democratic government planned to redistribute only 30% of the land within the first 20 years of democracy, so that after 20 years of political freedom, black people would own 43% of the land.

“In 2011, less than 5% of South Africa's land has been redistributed. The indications are that, by 2014, we will still not have exceeded 5% land redistribution, which will be 20 years since the democratic dispensation. If we continue with this trend and pace of 5% transfer every 20 years, it means we would have redistributed only 25% of land in 100 years. In other words, in 100 years time, the inequalities between black people and white people will still remain, and this will automatically lead to continued racism and economic subjugation of blacks by white people, like it happened under apartheid.”

Quite right. Sort of. The real question is what to do about it.

Malema wants to expropriate privately owned land and nationalise privately owned industries. By that, he means to take these assets into state ownership. He cites the Freedom Charter, which promises to return the assets of the country to “the people”.

Note that it does not say “the state”. In this lies a key distinction.

There is a very good reason why the efforts of the government to promote the advancement of people who were discriminated against under Apartheid have not led to the kind of vigorous blossoming of growth and prosperity one might expect.

A great many people who have benefited from government's programmes such as the RDP housing scheme are little better off than before, because they do not own title to the land or home they occupy. A great deal of what economist Hernando de Soto calls “dead capital” is tied up in land owned by the state or by local municipalities.

This has many consequences. The most obvious is that tenants are unable to raise capital against their fixed assets, in order to start or invest in a business. They may have a place to sleep, but they're no richer, in the broader economic sense of the word.

It is widely accepted that the true engine of economic growth lies not with big business, which grows slowly, but with vibrant, varied and competitive small-scale businesses. If we accept this, and we're hoping to let free-market capital do the heavy lifting in terms of creating such a vibrant sector, then capital is what its would-be participants need.

There are other negative effects of not owning your property outright. People cannot sell their houses, for example, or rent them out. In fact, that's one of the reasons the law prevents them from receiving full title in the first place. Government was afraid that recipients of affordable housing would be reckless, and sell them to people who didn't need them, or bankrupt themselves taking out loans against their assets. However, a study by the Free Market Foundation (FMF) and the US-based Mercatus Centre found this to be an unfounded fear in areas such as Langa. Where residents were able to buy inexpensive houses outright, they were very attached to those assets, and few recklessly mortgaged or sold them.

(The study is cited in a book entitled “Nationalisation,” compiled by Temba Nolutshungu of the FMF. It is well worth obtaining, if you can. The ANC Youth League commended it highly, saying it was written by “intellectually weak and dim-witted individuals”.)

In a wide-ranging interview by Denis Beckett on Radio Today, Leon Louw, the FMF's executive director (to whom I'm indebted for many of the ideas in this column), notes that the inability to sell these houses has an even more perverse effect: it makes their tenants unable to move to where they can find work. It exacerbates the unemployment problem by making labour immobile.

In simple terms, those who once were “disadvantaged” are now no better than medieval serfs, tied to their cottages and beholden to their masters.

How much land would be available for redistribution, if we count only state-owned land?

A report by the Southern African Regional Poverty Network estimates that about 24% of all land is owned by national or provincial governments. This does not include the 1.2 million properties owned by municipalities, which covers large swaths of residential property. Despite 14 years of effort on the part of the Department of Land Affairs, comprehensive, accurate and detailed statistics on who owns what remains an elusive goal, but based on the numbers cited here, one might guess close to half of all South Africa's land is state-owned.

A similar argument can be made – and indeed, Louw does make it – for state-owned enterprises. A quick-win empowerment plan would make shares available to South Africans who remain disadvantaged.

This proposal is not only just, given that most of these monopolies were established by the National Party under Apartheid, to be used for the enrichment of whites and the subjugation of blacks. These lumbering state monoliths were inefficient even when only 10% of the population needed to be catered for. Returning ownership to the people would relieve the government of what is clearly too heavy a burden – trying to run monopoly airlines, broadcasters, power stations, railways, and game reserves – while injecting billions, if not trillions, worth of capital into the economy.

The one-hour Beckett-Louw interview is worth listening to in its entirety, for it makes the case for these two ideas eloquently, and contains many other critical observations about the direction of South Africa's post-liberation economy.

Julius Malema is right. We need a radical solution to the problems of marginalisation and poverty, which still occur disproportionately among South Africa's black population.

For lack of a better option, perhaps Malema ought to take advice from the intellectually weak and dim-witted, then. If you want to give land and monopoly industry to the people, you can indeed steal it from productive citizens. However, it would be much smarter to reclaim dead capital from the dead hand of the state. DM

Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He writes on this and many other matters, from the perspective of individual liberty and free markets. He is seldom wrong.

Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He writes on this and many other matters, from the perspective of individual liberty and free markets. He is seldom wrong.

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